Small Cap Value Report (Wed 22 Mar 2017) - XAR, CRPR, ECK, SCT, QXT, CLL, EGS, CBUY, VANL

22nd Mar '17 by Paul Scott

16 comments 16915 reads

Good afternoon!

Apologies, but I'm running late today, so am slowly updating this article, and will continue doing so this afternoon/evening.

In the meantime, I was burning the midnight oil last night, reporting on 6 more companies' results, so 9 in total. Therefore, here is the full report from yesterday.

Today I have looked at results & trading updates from;

Xaar (LON:XAR)

James Cropper (LON:CRPR)

Eckoh (LON:ECK) (major contract win)

Quixant (LON:QXT)

Cello (LON:CLL)

eg Solutions (LON:EGS)

Cloudbuy (LON:CBUY)

Van Elle Holdings (LON:VANL)

Xaar (LON:XAR)

Share price: 335p (down 7.1% today)
No. shares: 77.7m
Market cap: £260.3m

Final results - for the year ended 31 Dec 2016.

This company makes innovative inkjet printheads, for commercial use. The core issue here is that the company has been heavily reliant on one sector - namely print heads for ceramic tile printing, where demand comes from China. Competition has been increasing, so this area is under pressure. Therefore the challenge for Xaar is to develop new products, and indeed it is spending a lot on R&D, and has some very interesting new products in the pipeline.

In the meantime though, results are not exactly sparkling. A few points;

Revenues rose by 2.9% to £96.2m, but this was after including £6.7m from an acquisition of a company called EPS, which is included in the P&L figures from 1 Jul 2016. Strip that out, and organic revenues fell by 4.3%

Adjusted operating profit margin is still strong, at 20% (2015: 22%). Although note that the company changed its accounting policies a while back to be much more aggressive about capitalising development spend. Contrary to what some people seem to think, there is plenty of leeway here to interpret accounting standards, so companies which aggressively capitalise development spend have usually chosen to do so.

Diluted adjusted EPS fell from 24.5p in 2015 to 21.2p in 2016. That gives a PER of 15.8. That may seem good value for a tech company, but earnings are falling. So the key issue is whether this level of earnings is sustainable?

Balance sheet - very…

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maillotàpoisrouges

22nd Mar '17

Hi Paul,
Looking forward to your views on QXT
Hederz

00mrmark00

Hi Paul, any thoughts on the trading update from VANL which floated back end of last year? First profit warning since flotation! More to come? Was looking at this in detail last week but didn't invest, so had a lucky escape there... Cheers, Mark

CliveBorg

If possible can you comment on Softcat? Thanks.

Rusty2

I was lucky also on Van Elle Holdings (LON:VANL), I sold out 2 weeks ago, good job I did not wait for the results.

Good shout... Also whats this "Contingent Liability" in the trading update. Is this to do with the recent departure of the MD?

tony akram

Hi Paul

Any chance at looking at Softcat (SCT) results came out today ,they looked good in my opinion..

The Phoenix

Would second that Paul, Softcat recently been paying special div;s has a good recurring income chunk of business and net cash appreciate a bit above your normal market cap limit but looks a good growth company.

Cheers

Paul Scott

OK, due to popular demand, I'll look at Softcat (LON:SCT) a bit later, although it's a bit bigger than my usual size, but never mind.

Am off out for a jog first, need to stretch my legs & de-stress a bit.

Regards, Paul.

Modform

Paul,
A small cap company in the cyber security sector ECSC published its results. I have only had a quick look through it so far, a good growth in revenue but only 0.6m profit due to increased operating cost in infrastructure and staff number as the company expands... Looks interesting

Paul,

Thanks for looking in to SCT -appreciated

23rd Mar '17

Paul, thanks for Softcat (LON:SCT) review, I agree and surprised that the shares went up so much today, I have now sold my holding. But I will keep an eye on it.

Glen Keedy

Microsoft put up prices to resellers like Softcat (LON:SCT) on 1/1/17. So companies brought forward spend to December 16. Microsoft said that price increases of 13-22% were due to sterling depreciation. If SCT can pass on these increases then its good for revenue next year as software and services licenses tend to be renewed annually.

bluecurve

Hi Paul,

Just a quick comment on Eckoh (LON:ECK). The company actually announced back in Sept that it would be changing its selling model in the US to take future contract revenue using the SaaS model. This basically means that the company gets less revenue in year 1 than under the "up front" model, so future earnings would likely drop. The market interpreted this as a profit warning, but I thought it made the company stronger, and bought a load of shares on the decline. The SaaS model means the stream of revenue is generally more certain, and in turn this makes earnings more stable and less susceptible to unforeseen drops. My holding is up 12% from the low and the fact the shares haven't moved much for 6 months is a good sign in my books.

The latest announcement is encouraging, as it shows that revenues are growing, and that average contract values are also increasing (which should mean future revenue growth is underpinned). As long as costs don't get ahead of themselves we should see this revenue growth feed through to earnings in the next few years. Broker forecasts seem to support that view, with forecast EPS rising above historic in the next 2 years even with the change in rev rec policy. A P/E of 23 for what is essentially a stable, growing commercial technology business is OK in my view. Comparable companies trade on a p/e of around 30.

Thanks for all the great analysis - keep up the good work, Mark.

Robert corden

Paul
Thanks for another good article. A couple of words on Cropper. It is a very nice family business and in my view we'll run. However, it is a very large user of energy and benefits when energy prices fall and of course vice versa. Given that energy prices may be recovering, the PE does look very steep. Hope this is of help to you.

bobo

I worked for a Xaar competitor, they are all very competent at technology (in the blood) they all struggle when the market turns down and it is not in their control. Tile people either want heads or they don't. Avoid or buy on the emotion

24th Mar '17

Thanks for your comments on VANL Paul. Cheers, Mark

Small Cap Value Report (Wed 22 Mar 2017) - XAR, CRPR, ECK, SCT, QXT, CLL, EGS, CBUY, VANL

Xaar (LON:XAR)

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Paul Scott

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